The Supreme Court of Canada today granted leave to appeal in
Indalex Limited (Re). This is an appeal from the Ontario
Court of Appeal (2011 ONCA 265). Please see our
Pension Pulse dated April 20, 2011, for a detailed
summary of the decision of the Ontario Court of Appeal.
Indalex Limited and its U.S. parent sought protection from their
creditors under the Companies Creditors Arrangement Act
and under Chapter 11 of the U.S. Bankruptcy Code. The
court authorized a loan under a debtor-in-possession credit
agreement and gave the lenders a super-priority charge against
Indalex' assets. Upon the sale of Indalex' assets, two
groups of pension plan members argued that a portion of the
proceeds should be reserved for payment of pension fund
The court of appeal decided in favour of the pension plan
members, notwithstanding the super-priority granted under the DIP
loan. The court held that the deemed trust provisions in the
Ontario Pension Benefits Act, in respect of the Salaried
Pension Plan that had been wound up prior to the CCAA
proceedings, was effective as against the guarantor of the DIP
loan. The court also applied a constructive trust in respect of the
deficiency in the Executive Pension Plan that had not been wound
The decision of the court of appeal came as a surprise to most
pension and insolvency practitioners. It has potentially
far-reaching implications for lending transactions and has already
found its way into the negotiation of financing agreements. It has
also created uncertainty with respect to the extent of an
employer's fiduciary obligations in its role as pension plan
administrator and how conflicts in corporate sponsor and
administrator roles may be resolved.
It is certainly good news that the leave to appeal to the
Supreme Court of Canada has been granted. Hopefully the
country's highest court will bring much needed clarity to these
areas of law.
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